Research › Search › Judgment

Punjab High Court · body

2014 DIGILAW 1597 (PNJ)

Priya Klay Pvt. Ltd. v. State of Haryana

2014-11-20

HEMANT GUPTA, JAISHREE THAKUR

body2014
JUDGMENT : Hemant Gupta, J. This order shall dispose of abovementioned two writ petitions i.e. CWP No.5010 of 2014 and CWP No.20415 of 2014 filed by the same petitioner i.e. M/s Priya Klay Pvt. Ltd. The prayer in CWP No.5010 of 2014 is for a writ of mandamus directing the respondents to re-constitute State Level Inter Institutional Committee (for short SLIIC) and Regional Rehabilitation Committees at District Level in the State of Haryana and also for a writ of mandamus directing the respondent No.2- Director, Department of Industries, Haryana, to consider the restructuring or rehabilitation of the petitioner unit. 2. In CWP No. 20415 of 2014, the petitioner has sought quashing of the orders dated 20.02.2014 (Annexure P-37) and 29.03.2014 (Annexure P-40) passed by Empowered Committee constituted by Reserve Bank of India rejecting the restructuring/rehabilitation proposal submitted by the petitioner. 3. The petitioner was established in the year 1984 after availing financial assistance from Haryana Financial Corporation. The petitioner is a Small Scale Industry having registered in the year 1986 and started commercial production as well in the same year. The petitioner subsequently availed term loan of Rs. 5 crores and working capital term loan of Rs. 1.25 crores from State Bank of Patiala, respondent herein. It is asserted by the petitioner that the furnace in the manufacturing unit of the petitioner could not be installed properly and production could not commence. The petitioner requested for rescheduling of the loan amount and to provide rehabilitation package. The Bank directed the petitioner to deposit the overdue interest. The account of the petitioner was declared as Non Performing Asset (for short NPA) on 29.02.2012 and notices under Section 13(2) and 13(4) of the Securitization and Reconstruction of Financial Asset and Enforcement of Security Interest Act, 2002 (for short the SARFAESI Act) were issued on 18.05.2012 and 29.10.2012. The grievance of the petitioner is that the Bank did not co-operate in revival of the unit. The request of the petitioner for re-schedulement of the term loan has fallen on deaf ears. It is also pointed out that the State Government, to meet the requirements of Small Scale Industries issued an order dated 19.04.2001 to provide a scheme for rehabilitation of sick small scale industrial units on the analogy of rehabilitation of Sick Companies under the Sick Industrial Companies (Special Provisions) Act, 1985. The said scheme contemplated constitution of SLIIC. 4. It is also pointed out that the State Government, to meet the requirements of Small Scale Industries issued an order dated 19.04.2001 to provide a scheme for rehabilitation of sick small scale industrial units on the analogy of rehabilitation of Sick Companies under the Sick Industrial Companies (Special Provisions) Act, 1985. The said scheme contemplated constitution of SLIIC. 4. The petitioner has also relied upon the circulars issued by Reserve Bank of India issued from time to time i.e. 13.02.1996 (Annexure P-4), 05.01.1998 (Annexure P-5), 16.01.2002 (Annexure P-6) and 01.11.2012 (Annexure P-8) prescribing parameters for grant of concessions by Banks as per the packages evolved for rehabilitation of potentially viable sick small scale industrial units. The grievance of the petitioner is that it moved an application before the Regional Rehabilitation Committee, Chandigarh on 13.11.2013 through General Manager District Industries Centre Jind to declare the petitioner as a Sick Unit as per the terms established by the Reserve Bank of India. Since the bank was violating its own policy and the Regional Rehabilitation Committee was not taking any action on the application, the petitioner filed CWP No.26735 of 2013 titled M/s Priya Klay Private Ltd. v. State of Haryana and others, which was decided on 05.12.2013 with a direction to respondent No.10 i.e. Regional Rehabilitation Committee to decide the representation of the petitioner within one month. The order reads as under:- "Learned counsel for the petitioner submits that the only relief at present which he seeks vide this petition is disposal of the representation made by the petitioner vide Annexure P9 dated 13.11.2013. The representation is stated to be made to respondent No. 10. The aforesaid respondent No. 10 to decide the representation of the petitioner within one month of the receipt of the order. The petition stands disposed. A copy of the complete set be handed over to learned Additional Advocate General, Haryana. Copy dasti to learned Additional Advocate General, Haryana under signatures of the Bench Secretary." 5. In terms of such direction, the petitioner was informed on 03.01.2014 that there is no such Regional Rehabilitation Committee existing in the Department of Industries and Commerce but Reserve Bank of India has constituted an Empowered Committee on Micro, Small and Medium Enterprises (for short MSME). The representation of the petitioner has been ordered to be considered by the Chairman of Empowered Committee. The representation of the petitioner has been ordered to be considered by the Chairman of Empowered Committee. The rehabilitation proposal submitted by the petitioner was considered by the Empowered Committee on 01.01.2014. The minutes of such meeting were communicated to the petitioner on 03.01.2014. The meeting was held under the Chairmanship of Regional Director, Reserve Bank of India, whereas the other participants included Joint Director from Department of Industries, Chairman, Haryana Chamber of Commerce and Industries and representatives of the Banks including the Punjab National Bank, State Bank of Patiala, Indian Overseas bank, Oriental Bank of Commerce and Canara Bank etc. A perusal of the minutes shows that the SLIIC was discontinued in March, 2010 with mutual consent of Reserve Bank of India, New Delhi and the State Government. One of the functions of the SLIIC was examination of representations/complaints received with regard to delays/inadequacies relating to revival of sick units. The rehabilitation proposal of the petitioner was discussed in the Empowered Committee at the instance of the Government of Haryana. In respect of the account of the petitioner, the Committee recorded the following factual position:- "The General Manager, SBP apprised members that the unit was sanctioned a term loan of Rs. 5.00 crore and CC limit of Rs. 1.25 crores by his bank on 28.06.2007 and 29.09.2010 respectively. The term loan was sanctioned for six years with a moratorium period of 12 months. The repayment was to start from August, 2008. As per the bankss versions, the term loan account became irregular almost since inception in August 2008 soon thereafter, the company requested in December 2008 for restructuring of the term loan and to increase the moratorium period to 24 morning. This was acceded to by the bank. However, the company failed to service the interest and installments as per the revised repayment schedule and the unit could not achieve the expected capacity utilization. The account was declared NPA on 29.02.2012 and the total outstanding balance as on the date of NPA, in both the accounts was Rs. 4.61 crores + accrued interest. Thereafter, the bank issued notice under SARFAESI Act, 2002 on 18.05.2012 and 29.10.2012. At present SARFAESI action is in an advanced stage and orders for physical possession were received by the bank on October 24, 2013. 4.61 crores + accrued interest. Thereafter, the bank issued notice under SARFAESI Act, 2002 on 18.05.2012 and 29.10.2012. At present SARFAESI action is in an advanced stage and orders for physical possession were received by the bank on October 24, 2013. The GM, SBP further informed the house that the company has given a corporate guarantee in the account of its sister concern, namely M/s Priya Clay Products Pvt. Ltd., which is also an NPA account and having an outstanding of Rs. 13.52 crores as on November 30, 2013. The bank has already taken physical possession of the unit (M/s Priya Klay Products Pvt. Ltd.), a civil suit has been filed against it by the bank in DRT for recovery and M/s Priya Klay Pvt. Ltd. has also been made a party in the suit." 6. The submissions of the representation of the Haryana Chamber of Commerce and Industries were also considered and also the fact that the rehabilitation proposal of the company was declined by the General Manager (OAMQ) SBP on 17.10.2013 based on the recommendations of the Chief Manager, Building Branch, State Bank of Patiala, New Delhi. It was also noticed that the issue of the validity, quantum of reliefs and concessions, terms of re-schedulement etc. is within the policy domain of the Bank and the regulator (Reserve Bank of India) will not intervene in these matters. It was also noticed that the Borrower filed writ petition only after orders for physical possession of the securities under the SARFAESI Act was passed in October, 2013. The Committee concluded as under:- "Further, the GM, SBP opined that the company/borrower is also willful defaulter on the grounds that sales proceeds were not routed through the account of SBP In terms of Para no.2.1(b) read with Para no.2.2.1 (d) of RBI Master Circular DBOD No.CID BC 3/20 to 003/2013-14 dated July 1, 2013 on Willful Defaulters, it is a case of willful defaulter will have to be followed by the Bank in letter and spirit. The EC unanimously agreed with the observations of the Regional Director. Based on the deliberations during the meeting. The following decisions were unanimously approved by the EC: 1. SBP would re-examine the rehabilitation proposal of the company after following due procedures as prescribed in RBI Circular RPCD Co. MSME & NFS DO. 10/00.02.02.2012-10 dated November 1, 2012. The annual or sale or approximately Rs. Based on the deliberations during the meeting. The following decisions were unanimously approved by the EC: 1. SBP would re-examine the rehabilitation proposal of the company after following due procedures as prescribed in RBI Circular RPCD Co. MSME & NFS DO. 10/00.02.02.2012-10 dated November 1, 2012. The annual or sale or approximately Rs. 6 crores reportedly achieved by the borrower in the recent past may be considered as one of the several inputs while deciding on the viability of the unit. 2. SBP would follow the prescribed procedure before the unit as a willful defaulter. 3. Jt. Director (JD), Industries shall submit compliance to the Hon’ble Punjab and Haryana High Court with regards to orders dated December 5, 2013, within the time line prescribed by the Court. The JD. Industries shall also inform M/s Priya Klay Pvt. Ltd. about the developments having taken place in the instant EC meeting." 7. In reply to CWP No.5010 of 2014, the Director of Industries and Commerce averred that the present matter relates to a dispute between the petitioner and the lending Bank, which has declared the account of the petitioner as NPA and started recovery proceedings. The Empowered Committee of the Reserve Bank of India and the lending Bank has declared the petitioner as willful defaulter as per the guidelines of the Reserve Bank of India. It is also averred that in terms of the direction issued by the Empowered Committee held on 01.01.2014, the Bank has sent reply on 21.01.2014 that the petitioner is not a potentially viable unit as per the study conducted by them and that the company is not routing its sale proceeds through the account with them and is a willful defaulter and that petitioner is not eligible for any relief and concession. The Bank has declared that the case is not fit for rehabilitation. 8. It is also pointed out that Reserve Bank of India noticed that after the constitution of the Empowered Committee at the Regional Offices of Reserve Bank of India in September, 2005, there is an overlapping of the focus of the Empowered Committee and the SLIIC, therefore, the State Government has decided to discontinue as SLIIC. The relevant assertions read as under:- "10. That the Reserve Bank of India vide their letter no.RPCD.ND.SLIIC. The relevant assertions read as under:- "10. That the Reserve Bank of India vide their letter no.RPCD.ND.SLIIC. No.2670/06.02.01/2008-09 dated 14.11.2008 and subsequent reminder dated 23.10.09, informed the State Government that after the constitution of the Empowered Committees at the Regional Offices of RBI in September 2005, it is felt that there is an overlapping of the focus of the Empowered Committees and the State Level Inter Institutional Committee (SLIIC) or otherwise as such meetings become duplication of efforts. Hence, the matter was taken up with the Ministries of MSME, Government of India for consideration of continuance or otherwise of SLIIC in view of the constitution of the Empowered Committee at the Regional Office of RBI. The Ministry of MSME has opined that entrusting the responsibility entirely to the Empowered Committee in the matter of rehabilitation of Sick MSMEs would not only mean that SLIIC would have no future role but even the sub-committee and existing committee, etc. at the district level in some of the states which provide a forum to address the problems of sickness and take remedial action would have no further role and advised to obtain the view of the State Government/ Chairman of the SLIIC of the concerned State before taking any decision on continuance of the SLIIC. In view of above RBI requested to forward views on continuance of the SLIIC for onward submission to Minister of MSME, Government of India. It was also mentioned that Department of Industries, Government of NCT of Delhi has confirmed to wind up the SLIIC for NCT of Delhi under similar circumstances. A copy of the letter dated 14.11.2008 of RBI is attached as Annexure R-5 and a copy of the letter dated 23.10.2009 of RBI is attached as Annexure R-6. 11. That in response to the above communications of the RBI, the State Government of Haryana conveyed their views to RBI, New Delhi vide letter no.IPC/2010/1469 dated 9.3.2010 that keeping in view the RBI has constituted an Empowered Committee and reviews the position on quarterly basis, the Government of Haryana has decided to discontinue the SLIIC. A copy of the letter dated 9.3.10 is attached as Annexure R-7." 9. A copy of the letter dated 9.3.10 is attached as Annexure R-7." 9. In the second writ petition i.e. CWP No.20415 of 2014 the challenge is to the communication dated 20.02.2014 (Annexure P-37) whereby the petitioner was informed by the Bank that request of the petitioner for rehabilitation and re-scheduling of the credit facilities has been declared as unviable. Later, on 29.03.2014, (Annexure P-40), the Bank has communicated to the following effect:- "Sub:- INCLUSION OF NAME(s) OF THE COMPANY AND ITS DIRECTORS/GUARANTORS IN RBI/CREDIT INFORMATION COMPANIES (CICs) LIST OF WILFUL DEFAULTERS OUR REPRESENTATION/APPEAL BEFORE GRIEVANCE REDRESSAL COMMITTEE (GRC) Please refer to the notice sent to you vide our Letter No.357 dated 15.01.2014 advising Banks decision for inclusion of your name in the RBI/CIBIL and other CICs list of Wilful Defaulters. We also refer to your representation/appeal against the decision of the Bank in this regard vide your Letter No. NIL dated 21.01.2014. In this connection, the Grievance Redressal Committee (GRC) has rejected the appeal made by you, against the decision of the appropriate Committee for inclusion of your name in the RBI/CIBIL and other CICs list of Willful Defaulters, on the grounds mentioned below:- (i) The Company is not routing sales through the Bank (SBoP); (ii) The Company is maintaining a Current Account with other Bank without prior permission and did not close the account and continued to route the transactions through the Other Bank; (iii) The Company did not submit stock statement regularly; (iv) The Company did not submit FFR-I & FFR-II regularly. 3. Since your appeal has been rejected by the Grievance Redressal Committee (GRC) in its meeting held on 20.03.2014, your name is being forwarded to the RBI/CIBIL and other CICs for inclusion in Willful Defaulters list." 10. It may be noticed that the Borrower has made sales of Rs. 5.97 crores in the financial year 2012 and of Rs. 5.61 crores in the financial year 2013 but did not deposit the sale proceeds with the Bank in its Cash Credit Account. The details are as under:- Year (as on 31st March) Sales as per Balance Sheet Credit summations in CC a/c 2011 4.37 2.07 2012 5.97 0.99 2013 5.61 0.04 11. It was thus concluded that the sale proceeds are not routed through the Bank accounts. 12. We have heard learned counsel for the parties and find no merit in the present writ petitions. It was thus concluded that the sale proceeds are not routed through the Bank accounts. 12. We have heard learned counsel for the parties and find no merit in the present writ petitions. The Constitution of SLIIC was by Directorate of Industries vide communication dated 19.04.2001. The said Committee has been discontinued on 09.03.2010 when the State informed Reserve Bank of India to discontinue the SLIIC in view of the constitution of the Empowered Committee by the Reserve Bank of India. The communication reads as under:- "Memo No.IPC/2010/1469 Chandigarh dated, the 9.3.10 Sub:- 80th meeting as State Level Inter Institutional Committee (SLIIC) for the State of Haryana-fixing the date for holding the meeting. Reference to your letter no.RPCD/ND/1513/SLIIC (Haryana) dated 23.10.2009 on the subject cited above. In this connection, it is informed that keeping in view the RBI has constituted an Empowered Committee to review the position on quarterly basis, the Government of Haryana has decided to discontinue the SLIIC, it is for your kind information, please." 13. The circulars of the Reserve Bank of India, referred to by learned counsel for the petitioner, are for directing the Banks to have systematic approach in the detection of symptoms to sickness and ensure that sickness is arrested at the incipient stage itself. The branch officials and other functionaries at field level should be able to monitor the day-to-day operations in the accounts of the borrower so as to formulate identification of the early warning signals and to initiate corrective steps promptly. 14. The constitution of SLIIC was an executive decision so is the decision to discontinue the same. On the other hand, the Reserve Bank of India had constituted Empowered Committee to deal with the issues of rehabilitation of current sick and potentially viable sick small scale industrial units. Such Empowered Committee has considered the rehabilitation proposal submitted by the petitioner but the proposal has been declined. The reasons of the Empowered Committee have been recorded and communicated to the petitioner. The issues raised by the Bank are the issues of fact regarding sales being effected not through the Bank. Meaning thereby that instead of liquidating the outstanding amount due and payable to the Bank, the petitioners are utilising the amount of sales in other ways, thus, jeopardising the financial interest of the Bank. The issues raised by the Bank are the issues of fact regarding sales being effected not through the Bank. Meaning thereby that instead of liquidating the outstanding amount due and payable to the Bank, the petitioners are utilising the amount of sales in other ways, thus, jeopardising the financial interest of the Bank. The decision of the Bank not to accept rehabilitation package is a decision by the experts keeping in view the record of the petitioner and the commercial viability. Such decision of the experts cannot be interfered with in the writ jurisdiction of this Court when the Bank has issued notices under Section 13(2) and 13(4) of the SARFAESI Act. The petitioner has effective alternative statutory remedy to challenge the said action before an appropriate Forum. 15. We do not find any ground to interfere in the action of the Bank in the present writ petition. 16. Consequently, both the writ petitions are dismissed.